HMRC have published draft legislation within the Finance Bill 2017 to introduce a measure to reform the tax treatment of certain types of carried-forward loss for corporation tax purposes. The new rules will apply to all losses arising on or after 1 April 2017.
The reform has two aspects. It provides more flexibility in how losses arising on or after 1 April 2017 can be relieved when they are carried forward; and it limits the amounts against which all carried-forward losses (whenever they arise) can be relieved to 50% of profits, subject to an annual allowance. Losses arising before 1 April 2017 will remain subject to the existing rules and can’t benefit from the increased flexibility, but they will be subject to the restriction on the amount of profit that can be relieved by carried-forward losses. Where an accounting period begins before 1 April 2017 and ends after 1 April 2017 the period is treated as two separate accounting periods and profits and losses are apportioned to the two periods.
The rules will apply to losses arising in the form of trading losses, expenses of management, non-trading loan relationship deficits, UK property business losses and non-trading losses on intangible fixed assets. No changes are made to relief for in-year losses or in-year group relief, and to losses carried-back to an earlier period: they can still be set off against all available profits of the same period. There is also no change to the treatment of allowable losses under the chargeable gains legislation.
This is one of the measures announced in the government’s ‘Business tax roadmap’ which was launched in last year’s Budget, setting out the Government’s plans for business taxes to 2020 and beyond.
More details can be found here.